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Column: New IRS guide to fringe benefits - Westfair Online

Google IRS Federal Income Tax - Sun, 2014-05-25 08:14

Column: New IRS guide to fringe benefits
Westfair Online
In January, the IRS released its newly updated Fringe Benefits Guide, publication 5137. Although the guide is directed at federal, state and local government employers, it provides a helpful overview of how the agency defines fringe benefits as well as ...

Categories: Tax news

Captive funding of retiree health benefits is deemed insurance by IRS - Business Insurance

Google IRS Federal Income Tax - Sun, 2014-05-25 04:09

Captive funding of retiree health benefits is deemed insurance by IRS
Business Insurance
In the ruling, the IRS cited a 73-year-old Supreme Court decision. In Guy Helvering v. Edyth Le Gierse, the U.S. high court said for an arrangement to be considered insurance for federal income taxes, both risk shifting and risk distribution must be ...

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IRS gives Tax Information for Students Who Take a Summer Job - Clarksville Online

Google IRS Federal Income Tax - Sat, 2014-05-24 23:32

IRS gives Tax Information for Students Who Take a Summer Job
Clarksville Online
2. As a new employee, you'll need to fill out a Form W-4 , Employee's Withholding Allowance Certificate. Your employer will use it to figure how much federal income tax to withhold from your pay. The IRS Withholding Calculator tool on www.IRS.gov can ...

Categories: Tax news

Atheists lose bid to overturn IRS' religious exemptions - Deseret News

Google IRS Federal Income Tax - Sat, 2014-05-24 14:09

Deseret News

Atheists lose bid to overturn IRS' religious exemptions
Deseret News
Summary. The continuing battle by some atheist groups to overturn tax provisions favoring churches and ordained clergy took a hit this week when a federal judge in Kentucky tossed a lawsuit against the Internal Revenue Service. ... The religious groups ...

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Federal Employees Set Poor Example, Owe $3.3 Billion in Back Taxes - Tax Law Home (blog)

Google IRS Federal Income Tax - Sat, 2014-05-24 11:56

Federal Employees Set Poor Example, Owe $3.3 Billion in Back Taxes
Tax Law Home (blog)
... than they paid originally. A spokesperson for the IRS indicated they pursue the collection of unpaid tax liabilities from federal employees in the same manner and rigor as they do for other residents of the United States. ... However, the ...

Categories: Tax news

Federal Employees Set Poor Example, Owe $3.3 Billion in Back Taxes - Tax Law Home (blog)

Google IRS Federal Income Tax - Sat, 2014-05-24 11:56

Federal Employees Set Poor Example, Owe $3.3 Billion in Back Taxes
Tax Law Home (blog)
... than they paid originally. A spokesperson for the IRS indicated they pursue the collection of unpaid tax liabilities from federal employees in the same manner and rigor as they do for other residents of the United States. ... However, the ...

Categories: Tax news

IRS alleges Northeast Portland woman filed 173 fraudulent returns claiming $1 ... - The Oregonian

Google IRS Federal Income Tax - Fri, 2014-05-23 16:28

IRS alleges Northeast Portland woman filed 173 fraudulent returns claiming $1 ...
The Oregonian
Saunders, whose company Diversity Group Business Group was registered with the state, is accused of charging an exorbitant fee -- often customers' full refunds -- to prepare and file tax returns, according to a federal complaint filed in U.S. District ...

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Federal workers owe IRS the $3.3 billion - CNNMoney

Google IRS Federal Income Tax - Fri, 2014-05-23 12:58

CNNMoney

Federal workers owe IRS the $3.3 billion
CNNMoney
A few weeks ago the IRS found itself in hot water with Congress for having paid $1 million in bonuses to 1,100 IRS employees who were late in paying their taxes or had willfully understated their tax liability or income. But it turns out the ...
Tax information for students who take a summer jobDothan First
Federal Employees Set Poor Example, Owe $3.3 Billion in Back TaxesTax Law Home (blog)
Delinquent on Your Tax Bills? You Could Soon Get FiredGovExec.com

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Michelle Singletary: IRS shouldn't outsource debt collection - Washington Post

Google IRS Federal Income Tax - Fri, 2014-05-23 11:40

Michelle Singletary: IRS shouldn't outsource debt collection
Washington Post
If it's determined they were in the financial position to pay for coverage and don't fall under an exemption, they face a penalty for being uninsured, which they have to pay when they file their federal income tax returns. The IRS is responsible for ...
No way to collect taxesWorcester Telegram
Turning to debt collectors for unpaid taxes a bad ideaBoston Globe

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Categories: Tax news

Treasury finds $2.3 Billion of Discrepancies in Alimony Deduction

Tax Foundation - Fri, 2014-05-23 09:00

The Treasury Inspector General for Tax Administration released last week a report detailing the discrepancies between alimony deductions taken and alimony income received. 567,887 tax returns recorded an alimony deduction in 2010, with those deductions totaling over $10 billion. In other words, this deduction is reasonably substantial.

What Treasury found was that 47% of the alimony deductions claimed didn’t match up right with corresponding alimony income reported. In most cases, the deductor indicated the Taxpayer Identification Number (TIN) of a recipient who filed a valid tax return, but there was disagreement on amounts. In some cases, the deductor indicated a recipient who didn’t file a tax return, even though they should have in order to report (at a minimum) the alimony income. Finally, in a handful of cases, the TIN indicated by the deductor didn’t exist at all.

The breakdown of these problem returns are as follows:

 

Tax Returns

Deductions Claimed by Payer

Associated Income Not Reported by Recipient

Tax Return Filed by Participant

222,895

$3.3 billion

$1.4 billion

      Alimony Income Was Not Reported

122,870

$1.1 billion

$1.1 billion

      Alimony Income Reported Was Less Than Deduction Claimed

75,383

$1.7 billion

$375.2 million

      Alimony Income Reported Was More Than Deduction Clamed

24,642

$469.2 million

-74.6 million

No Tax Return Filed by Recipient

36,795

$937.2 million

$937.2 million

Unable to Determine if Income Was Reported -  Recipient TIN Missing or Not Valid

6,500

$95.7 million

Unable to Determine

TOTAL

266,190

$4.3 billion

$2.3 billion

Source: Treasury Inspector General for Tax Administration Report

 

Of course, the vast majority of the errors work in taxpayer’s favor. (This is consistent with other errors taxpayers make, which also tend to work in their own interest.) It is unclear how much of the discrepancy comes from the deductors listing erroneous payments and how much of it comes from recipients failing to report their income.

The alimony deduction is very much a fair, neutral definition of the tax base. The income earned by the payer and sent to the recipient can only be spent by one person, the recipient. If you taxed that income for both the payer and the recipient, it would be double taxation.

The Treasury report had some recommendations on improving compliance, many of which are likely to be helpful. But it is worth mentioning that another solution exists, one that avoids double taxation and makes compliance easier: that would be for the IRS to simply ignore alimony, neither counting it as income nor allowing it as a deduction. The tax reform plan laid out by Rep. Dave Camp earlier this year used this proposal.

Both systems have their merits and their problems, but underreporting can only be a problem in systems that require one to report something. In that sense, the Camp proposal would solve the problem of underreporting completely.

Categories: Tax news

IRS Considering Change in Tax Treatment of Travel Loyalty Points

Tax Foundation - Fri, 2014-05-23 06:30

Gary Leff of the View from the Wing blog digs into hints that something is coming soon from the IRS on taxation of loyalty points. Currently, airline and hotel companies award miles and points to their customers and record it on their books as a liability. Tax is not due until the transaction is finalized when the customer redeems them (or the points expire).

Leff speculates that the IRS will want to change the timing to move the taxation earlier, perhaps when the points are awarded. He’s not sure, though, because although the IRS has talked about “changes to loyalty program accounting methods” as a priority for 2014, it has not offered any details about what it is thinking. The travel industry for their part sent a pre-emptive letter to the Treasury Department urging caution.

There are two reasons the IRS should be cautious here. The first is that the negatives of such a rule (potential chilling effect on successful marketing programs) outweigh the positives (the IRS gets the same amount of tax revenue, just earlier).

Second, and more problematically, taxing points and coupons when they are awarded rather than when they are redeemed means taxing revenue from transactions that have not actually happened (yet). If they never happen – if the points or coupons are lost or expire or are simply never used – it means a tax was paid on a transaction that never occurred. That’s not exactly unlikely – for example, with no disrespect to Bed Bath & Beyond, I can never possibly use all the coupons they send me. We don’t tax capital gains or income or sales or estates or pretty much anything else until the income is actually realized. We shouldn’t make an exception to this common sense rule for coupons or other advance payments.

Categories: Tax news

New State-Level Price Data Shows Smaller State Real Income Differences

Tax Foundation - Fri, 2014-05-23 06:30

After my series on interstate migration ended last week, I received a number of questions from people curious about a few points I made. One in particular was noteworthy: if people migrate to improve their incomes, why do people seem to leave high-income states and move to many lower-income states?

It’s an important question, and one of the curiosities of much migration-related research. Higher state income per capita is consistently associated with lower in-migration, rather than higher.

When I received these questions, my first response was to say the effect is an illusion: prices in DC and Mississippi are different, and those price differences eliminate much of the apparent income differences. Unfortunately, I didn’t have the data at the time to prove this point. From states like Mississippi, West Virginia, and Idaho with less than $32,000 in average disposable personal income (that is, after-tax income actually earned by real people that they can spend), to the District of Columbia with over $65,000 in average disposable income, a simplistic look at state incomes could make you think there are huge geographic income disparities and inequalities around our nation.

As a native of a poorer state (Kentucky), this narrative has always bothered me. Sure, incomes are higher here in DC, but so is the cost of living. From food to rent to taxes to gas, it’s just more expensive to live in some places than others. So real incomes, or what a person can actually buy with their money, may vary less than nominal incomes, or the dollar amount people earn. Unfortunately, standardized, official data on statewide price levels has not been available in the past.

But last month, the Bureau of Economic Analysis released a dataset producing state- and metropolitan-level relative price parities. This new data provides an answer to the question about migration and incomes. Prices are in fact far higher in some states than others, and states with higher incomes usually also have higher prices. Indeed, once state-level disposable incomes are adjusted for state price levels, 40 percent of the variation in state incomes vanishes. More importantly, the correlation between migration and incomes changes directions. Once you adjust for price differences, higher real incomes do indeed have a positive association with migration.

Here’s a concrete example of what this means: before adjusting for inflation and price differences, New York’s average disposable income is $45,463, the 8th highest in the nation. After the adjustment, it falls to $39,396, or 29th. Meanwhile, Louisiana’s pre-adjustment income is $36,806, the 30th highest in the nation. But after the adjustment? $40,269, or 21st. Louisiana goes from being almost $10,000 poorer than New York, on average, to having a “real income” almost $1,000 higher.

So what conclusions can we draw from the new price-adjusted income data? I thought of three:

 As I noted, once you adjust for price levels, the correlation between the migration replacement rate and disposable (after-tax) income changes from -0.4 to 0.25. Those are low correlations, but they do show the huge effect of price differences. Higher real incomes do indeed appeal to migrants. Measures of inequality based on unadjusted incomes may incorrectly measure nationwide inequality. If researchers don’t adjust for the fact that price levels are very different, then they will tend to overestimate the real impact of inequality in terms of peoples’ actual standard of living. Federal tax progressivity has strange consequences. People who are “poor” in one state could be “rich” in another without changing the dollar amount of their income. So the progressive nature of the federal income tax can lead to poor- or middle-class people in high-price states paying taxes equivalent to what significantly richer (in real, standard-of-living terms) people would pay in low-price states.

Whatever conclusions we may draw, the data is extremely useful, and fills what was previously a major hole in the tools available to economists working at the state level.

Nominal and Real Disposable Income by State State Per Capita Disposable Personal Income Real, State-Price Adjusted Income Difference (dollars) (percent) District of Columbia $65,770 $55,643 -$10,127 -15.4% North Dakota $49,273 $54,506 $5,233 10.6% Wyoming $45,887 $47,601 $1,714 3.7% South Dakota $41,977 $47,593 $5,616 13.4% Connecticut $50,534 $46,192 -$4,342 -8.6% Nebraska $40,764 $45,243 $4,479 11.0% Massachusetts $48,160 $44,925 -$3,235 -6.7% Iowa $39,821 $44,493 $4,672 11.7% Kansas $38,617 $42,956 $4,339 11.2% Maryland $47,222 $42,428 -$4,794 -10.2% Minnesota $41,289 $42,348 $1,059 2.6% New Jersey $48,108 $42,163 -$5,945 -12.4% Alaska $45,130 $42,138 -$2,992 -6.6% New Hampshire $44,558 $41,957 -$2,601 -5.8% Rhode Island $41,092 $41,633 $541 1.3% Virginia $42,661 $41,338 -$1,323 -3.1% Oklahoma $36,845 $40,984 $4,139 11.2% Pennsylvania $40,186 $40,715 $529 1.3% Wisconsin $37,702 $40,583 $2,881 7.6% Washington $41,811 $40,515 -$1,296 -3.1% Louisiana $36,806 $40,269 $3,463 9.4% Texas $38,755 $40,161 $1,406 3.6% Ohio $35,811 $40,147 $4,336 12.1% Illinois $40,346 $40,105 -$241 -0.6% Missouri $35,242 $40,002 $4,760 13.5% Vermont $40,292 $39,933 -$359 -0.9% Colorado $40,556 $39,917 -$639 -1.6% Tennessee $35,940 $39,625 $3,685 10.3% New York $45,463 $39,396 -$6,067 -13.3% Delaware $39,100 $38,221 -$879 -2.2% Florida $37,349 $37,803 $454 1.2% Indiana $34,340 $37,695 $3,355 9.8% North Carolina $34,104 $37,231 $3,127 9.2% Alabama $32,751 $37,175 $4,424 13.5% Montana $34,813 $36,956 $2,143 6.2% Maine $36,275 $36,902 $627 1.7% Arkansas $32,296 $36,868 $4,572 14.2% Georgia $33,740 $36,674 $2,934 8.7% Michigan $34,440 $36,483 $2,043 5.9% Kentucky $32,227 $36,292 $4,065 12.6% Mississippi $31,218 $36,132 $4,914 15.7% California $40,727 $36,074 -$4,653 -11.4% West Virginia $31,734 $35,817 $4,083 12.9% Nevada $34,858 $35,497 $639 1.8% South Carolina $31,979 $35,258 $3,279 10.3% Oregon $34,742 $35,164 $422 1.2% Hawaii $40,649 $34,683 -$5,966 -14.7% New Mexico $32,779 $34,577 $1,798 5.5% Idaho $31,504 $33,658 $2,154 6.8% Arizona $32,946 $33,584 $638 1.9% Utah $32,069 $33,129 $1,060 3.3%

To read more on taxes and migration, see here, here, here, here, and here.

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Categories: Tax news

Exclusive: Like New Jersey, most states felt drop in April income taxes

Yahoo Tax - Fri, 2014-05-23 04:04

By Lisa Lambert and Karen Pierog WASHINGTON/CHICAGO (Reuters) - New Jersey, which revealed a massive budget shortfall this week, is far from alone in feeling the pinch of lower income tax revenues in the key month of April, a Reuters analysis shows. Personal income tax collections plunged last month from a year earlier in 27 of 32 states for which Reuters was able to collect data. That's most of the 43 states that levy income taxes, and drops were as high as 50 percent. While many states predicted tough times this year, a handful including New Jersey and Pennsylvania is set to face hard decisions on either cutting spending or raising taxes.


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Federal prosecutor, IRS announce major tax fraud, identity theft case in ... - Greenfield Daily Reporter

Google IRS Federal Income Tax - Fri, 2014-05-23 02:10

Lexington Herald Leader

Federal prosecutor, IRS announce major tax fraud, identity theft case in ...
Greenfield Daily Reporter
Most of the refunds were for earned income tax credits, and they ranged from $1,000 to nearly $6,000, according to the indictment. The indictment describes a sophisticated organization involving several relatives who are accused of setting up ...
Feds announce major tax fraud case in Ala., Ga.Lexington Herald Leader

all 51 news articles »
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Amid backlash, IRS delays new U.S. rules for social welfare groups

Yahoo Tax - Thu, 2014-05-22 16:36

WASHINGTON (Reuters) - U.S. Republicans claimed victory on Thursday after the Internal Revenue Service said it will delay and rewrite proposed rules for tax-exempt, social welfare groups that were at the heart of the agency's a political controversy last year. "This proposed rule was wrong from the start," said Republican Representative Dave Camp, chairman of the tax-writing committee in the House of Representatives. "Hopefully the IRS and the Obama Administration will think twice before ever trying to go down this path again," he said in a statement. ...


Categories: Tax news

Tax information for students who take a summer job - Dothan First

Google IRS Federal Income Tax - Thu, 2014-05-22 14:53

Dothan First

Tax information for students who take a summer job
Dothan First
As a new employee, you'll need to fill out a Form W-4 <http://www.irs.gov/uac/Form-W-4,-Employee's-Withholding-Allowance-Certificate-1> , Employee's Withholding Allowance Certificate. Your employer will use it to figure how much federal income tax to ...
Federal workers owe IRS the $3.3 billionCNNMoney
Delinquent on Your Tax Bills? You Could Soon Get FiredMay 22, 2014GovExec.com
Firing Tax Delinquent Feds Still on the TableFedSmith.com
Accounting Today
all 95 news articles »
Categories: Tax news

Educational Attainment Drives Level of Income

Tax Foundation - Thu, 2014-05-22 14:45

The Washington Post’s Wonkblog has a new post today titled The ‘1 Percent’ isn’t America’s biggest source of inequality—college is. In reviewing a new research paper, the author reports a major driver in inequality is the increasing benefits of a college education, stating that in the past 35 years “the so-called college premium - the boost in your paycheck from earning a diploma - increased by $28,000, adjusted for inflation.”

Their point is illustrative. People with college degree tend to make much more income than those with high school degrees or less.

People with college degrees make nearly twice as much as those with just a high school diploma. In 2011 the median household income was $51,244, but households headed by a worker with a bachelor’s degree earned a median income of $78,251. For those with a graduate degree, median incomes jumped to $120,580—three times the income of a high school graduate.

If we break down this information by income, nearly 70 percent of households earning less than $20,000 a year have a high school degree or less. On the other end of the income spectrum, of household making $200,000, about 76 percent have a bachelor’s degree or higher.

Categories: Tax news

Money Matters / IRS wants a bite of gambling winnings - The Advocate

Google IRS Federal Income Tax - Thu, 2014-05-22 13:45

Money Matters / IRS wants a bite of gambling winnings
The Advocate
In some cases, his adviser explained, payers provide IRS Form W-2G, "Certain Gambling Winnings" -- particularly if the entity in question withholds federal income tax from winnings. The information from these forms needs to be included on his tax return.

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Categories: Tax news

Feds announce major tax fraud case in Ala., Ga. - Lexington Herald Leader

Google IRS Federal Income Tax - Thu, 2014-05-22 12:49

Lexington Herald Leader

Feds announce major tax fraud case in Ala., Ga.
Lexington Herald Leader
The indictment describes a sophisticated organization involving several relatives who are accused of setting up fraudulent tax preparation businesses to get electronic filing identification numbers to file federal tax returns electronically. The ...
Federal prosecutor, IRS announce major tax fraud, identity theft case in ...The Tribune
Tax fraud case leads to 10 arrestsTuscaloosa News

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Categories: Tax news

Foreign Effective Tax Rate for U.S. Corporations by Industry

Tax Foundation - Thu, 2014-05-22 08:30

U.S. headquartered corporations pay an effective tax rate of 27.2 percent on income earned in foreign countries. Not surprisingly, this rate varies widely by industry.

The petroleum and coal industry faces the highest effective tax rate on foreign earned income at 36.1 percent, with a reported $42.7 billion in taxes paid on $118.2 billion in taxable income. The mining industry has the second highest effective tax rate at 35.3 percent.

The industry with the lowest effective tax rate was agriculture, forestry, fishing and hunting at a 5.5 percent. (One possible explanation for this rate is that income earned by activities such as fishing may not be allocable to a specific foreign country and is subject to the U.S. tax instead.)

Industries such as the finance industry (19.1 percent), wholesale and retail trade (24.4 percent), and manufacturing (28.1 percent) all hover around the 20s (more below chart).

There are multiple potential factors in the wide differentiation in effective rates between industries (e.g. different rules for different industries), but a driving factor is where a corporation locates.

Tax rates vary between different countries. If we look at just the OECD, where US corporations do much of their international business, we see a range between Ireland with a 12.5 percent rate and the U.S. with the highest rate at 39.1 percent. The OECD average sits about 25 percent and the weighted average at about 28 percent with the effective rate right in between.

An industry that relies predominately on labor and advanced technology may choose to operate in a country with a low tax rate (e.g. finance and information), where as a company that relies on the presence of natural resources must go where the natural resources are, even if they will face tax rates that are exceedingly high (e.g. petroleum, coal, and mining). Additionally, industries such as services and utilities rely directly on customer interaction and thus must go where the customers are.

But it's important to remember that this effective tax rate is not final. Due to the worldwide corporate tax system in the U.S. corporations will be required to pay additional tax on the money up to the 35 percent federal rate in the U.S. The U.S. is only one of six OECD countries with this type of system.

For example, if a U.S. company operated in Ireland and earned $100, they would pay $12.50 due to the Irish tax rate of 12.5 percent. Then when they return that money to the U.S. they have to pay additional tax based on the difference between the U.S. and Irish rate. So in this case, they U.S. corporation would pay $12.50 to Ireland and $22.50 to the U.S. for a total tax bill of $35.

On the other hand, if an English company also worked in Ireland, they would only pay once and at the 12.5 percent rate. This double taxation puts U.S. companies at a competitive disadvantage.

But the bottom line is, if our worldwide system is born out of the fear that U.S. corporations don't pay taxes overseas, the data clearly shows that is not the case and in some instances, corporations must pay an equally high rate abroad.

Read more about how much corporations pay in foreign taxes on foreign earned income here. To see this data in our interactive map, see here.

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